When people think about what a founder needs to start a business, money is usually one of the first things that comes to mind. A business needs money to develop its product or service, pay employees, market itself, and survive as it grows. However, financial capital is only one part of what a founder needs. In The Founder’s Dilemmas, Wasserman (2012) discusses the importance of both financial and social capital, and I think the combination of the two is especially important when thinking about building a business for the long term.
Financial capital is the more obvious resource. Founders may use personal savings, loans, investments, or other funding sources to get their businesses started. Each option comes with its own tradeoffs. Taking on debt creates financial obligations, while accepting outside investment can require a founder to give up some ownership or control of the company. The money may help the business grow, but the way a founder obtains that money can affect the business and its future decisions.
Social capital is different because it comes from relationships. Founders build social capital through relationships with mentors, employees, customers, investors, business partners, suppliers, and other people in their networks. These relationships can provide access to knowledge, opportunities, resources, and advice that a founder may not be able to obtain on their own (Wasserman, 2012). In some cases, knowing the right person can be just as valuable as having additional money because that relationship may lead to a partnership, employee, customer, investor, or new opportunity.
I also think financial and social capital can strengthen each other. A strong network can help a founder find financial resources, while financial resources can give a business more opportunities to grow and develop relationships. At the same time, having one type of capital does not replace the other. A founder could have enough money to start a business but lack the relationships or knowledge necessary to grow it successfully. The opposite can also be true. Someone may have a strong network but not have enough financial resources to turn an idea into a sustainable business.
This is something I would want to think about if I eventually start my own business. I would not want my goal to simply be saving enough money to open the doors. I would also want to spend years building relationships with people in the industries and communities that could eventually support the business. For example, a future hospitality or distillery business would depend on relationships with farmers, suppliers, restaurant professionals, employees, other business owners, and the local community. Those relationships could become valuable long before I ever open the business.
Ultimately, one of my biggest takeaways from this topic is that building a business is not just about accumulating money. It is also about building the relationships that make it possible to use those resources effectively. A founder who understands the value of both financial and social capital can think beyond simply getting a business started and focus on building the foundation it will need to grow.
References
Wasserman, N. (2012). The founder’s dilemmas: Anticipating and avoiding the pitfalls that can sink a startup. Princeton University Press.